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The paradox of purchasing a new GM car

Because the public is now a co-owner of General Motors, its interest in great deals may conflict with GM's efforts to maximize profits.

August 19, 2009

The new General Motors poses something of a conflict of interest for taxpayers. The restructuring brokered by the Obama administration left the public owning 61% of the company, so the more profitable it becomes, the better the return will be on the public's investment. At the same time, taxpayers in the market for a car don't want to maximize their local GM dealer's profits, at least not until they drive away from the showroom. The bottom line, though, is clear: Now that we co-own GM, we're in favor of anything that boosts sales of its cars and trucks.

That's why we applaud some -- but not all -- of the announcements the automaker has made since emerging from bankruptcy last month. The good news included management changes that thinned its top ranks and enabled faster decision-making. Another welcome announcement was the headline-grabbing estimate of 230 miles per gallon for the forthcoming Chevy Volt hybrid. At more than four times today's leading mpg for city driving, it's the kind of leap in performance that GM must make to restore the brand it tarnished in previous decades with substandard quality and technology. Too bad the Volt won't arrive until next year, when it will face tough competition from Nissan's all-electric LEAF, which may cost $10,000 less and carry a more jaw-dropping mileage rating (the company's claim: 367 mpg).

There's less to cheer about GM's experiment with selling cars on EBay. Until mid-September, participating dealerships will offer cars at a discount through GM's EBay store; shoppers can agree to pay the "Buy It Now" price or make a lower offer. The main benefit of the initiative is that it may boost sales to consumers who don't enjoy the haggling rituals at the typical dealership. Although most dealers already have websites, too many insist that customers come into the showroom to negotiate.

The EBay effort isn't much of a breakthrough, however. Rather than pitting dealerships against one another to vie for sales remotely, GM's EBay store leaves it up to consumers to figure out where to find the biggest discounts. As a result, it illustrates how hard it may be for GM to be innovative in sales, because it can't empower consumers without cutting into its dealers' profits. Yet such innovations could be a key part of the automaker's effort to recapture lost market share, prodding more import-loving U.S. drivers to consider GM again. Balancing the interests of its shrinking dealership network with those of consumers won't be easy for the new GM. But the more it focuses on what's best for car buyers, the better it will perform for its new owners.

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